First-Time Home Buyer Guide: How to Buy Your First Home Step by Step

Buying your first home comes down to a clear sequence: check your credit and budget, save for a down payment and closing costs, get preapproved for a mortgage, shop for a home and make an offer, then complete inspections, appraisal and underwriting before closing. Taking these steps in order keeps you from falling for a house you cannot finance.

The rest of this guide covers what to do at each stage, what it costs, and the mistakes that most often trip up first-time buyers.

Step 1: Figure out what you can actually afford

Start with your monthly budget, not the maximum a lender might approve. Your real housing cost is more than principal and interest. It usually includes:

• Property taxes, which vary a lot by county and state
• Homeowners insurance, which lenders require
• Mortgage insurance if you put down less than 20% on a conventional loan, or on most FHA loans
• HOA or condo dues, if applicable
• Maintenance and repairs, which many owners budget at roughly 1% or more of the home's value per year

Lenders look at your debt-to-income ratio (DTI), which compares your monthly debt payments to your gross monthly income. Our guide on how much house you can afford walks through the 28/36 rule with a worked example so you can set a price ceiling you are comfortable with.

Step 2: Check and strengthen your credit

Your credit score affects whether you qualify, which loan types are open to you, and the interest rate you get. Pull your credit reports from all three bureaus, dispute errors, and avoid opening new accounts or financing large purchases in the months before you apply.

Paying down revolving balances often helps both your score and your DTI. Even a modest score improvement can move you into a better pricing tier, which lowers your payment for the life of the loan.

Step 3: Save for the down payment, closing costs and reserves

Many first-time buyers assume they need 20% down. You do not, although putting down less usually means paying mortgage insurance. Here is how common loan types compare at a high level:

Our overview of the main types of mortgages explains each option in more detail.

On top of the down payment, plan for closing costs, which commonly run a few percent of the loan amount, plus cash for moving, basic furnishings and early repairs. Some lenders also want to see a cushion of reserves, such as a couple of months of mortgage payments, left in your account after closing.

Look into down payment assistance

State and local housing finance agencies, and some cities and nonprofits, offer help for first-time buyers. Assistance can be a grant, a forgivable loan, or a deferred second mortgage repaid when you sell or refinance. These programs often have income limits, purchase price caps and a homebuyer education requirement, so read the terms carefully.

Step 4: Get preapproved for a mortgage

A mortgage preapproval is a lender's conditional commitment based on a review of your credit, income, assets and debts. It tells you your realistic price range and shows sellers you can close.

Shop more than one lender. Request Loan Estimates from several on the same day if you can, and compare the interest rate, APR, lender fees and points side by side. Multiple mortgage credit inquiries within a short shopping window are generally treated as a single inquiry for scoring purposes.

You will also choose between a fixed and adjustable rate and pick a loan term. Our comparison of fixed vs adjustable rate mortgages covers the tradeoffs, including 15- versus 30-year terms.

Step 5: Shop for a home and make an offer

With a preapproval in hand, work with a real estate agent or on your own to find homes in your range. Consider the full cost of ownership for each property: an older house with a cheaper list price may need a roof or HVAC system soon, and taxes and insurance can differ sharply between neighborhoods.

When you make an offer, you will typically include:

1. The price and any seller concessions, such as help with closing costs
2. An earnest money deposit held in escrow
3. Contingencies, commonly for financing, appraisal and inspection
4. A proposed closing date

Contingencies protect you. Waiving them can make an offer more competitive, but it also means you could lose your earnest money if something goes wrong.

Step 6: Inspection, appraisal, underwriting and closing

Once your offer is accepted, the clock starts. A home inspection looks for structural, electrical, plumbing, roof and other problems; you can use the results to request repairs or credits, or to walk away if your contract allows. The lender orders an appraisal to confirm the home is worth at least the loan amount.

Meanwhile, underwriting verifies everything in your file. Respond quickly to document requests, and avoid changing jobs, opening credit cards or financing furniture until after closing.

You will also need to shop for homeowners insurance, since lenders require it before closing. Understanding what homeowners insurance covers helps you choose adequate dwelling and liability limits rather than simply the cheapest policy.

Review your Closing Disclosure and close

At least three business days before closing, you should receive your Closing Disclosure. Compare it line by line with your Loan Estimate and ask about any changes. At closing you sign the loan documents, pay your remaining down payment and closing costs, and receive the keys.

Common first-time buyer mistakes to avoid

• Shopping for homes before getting preapproved
• Budgeting only for principal and interest
• Draining savings for the down payment and leaving no emergency fund
• Accepting the first rate quote without comparing lenders
• Skipping the inspection to win a bidding war
• Taking on new debt between approval and closing

The bottom line

Buying a first home is manageable when you tackle it in order: budget, credit, savings, preapproval, shopping, then closing. Base your price range on a monthly payment you can comfortably sustain, compare several lenders, and keep a cash cushion for the surprises that come with owning a home.